Reed Smith Client Alerts

In this alert, we provide a summary of the recent actions taken by the Office of Gas and Electricity Markets (Ofgem). In particular, this alert focuses on: (i) the recent REMIT fines Ofgem has imposed on energy suppliers; (ii) the latest developments relating to the Supplier Licensing Review (as also considered in previous client alerts1); (iii) the impact of COVID-19 on suppliers; and (iv) a reminder of some of the steps suppliers should be taking as part of their Brexit planning.

Authors: Prajakt Samant Simone Goligorsky Brett Hillis Chris Borg Sarah S. Bird

Oil refinery at night

1. REMIT fines

There has been an increased incidence in recently reported enforcement activity issued under Regulation (EU) No. 1227/2011 (REMIT)2 by Ofgem. Ofgem is the National Regulatory Authority (NRA) for REMIT purposes in the UK and will continue to be so until 31 December 2020, which marks the end of the Brexit transition period (Transition Period).3 We consider below the impact of two recent fines issued by Ofgem for REMIT breaches.

SSE

Ofgem announced on 3 September 2020 that it had fined SSE £2.627 million for a breach of article 4 of REMIT.4 Article 4 of REMIT requires a market participant to publicly disclose inside information it has in respect of business or facilities it, or its parent or related undertaking, owns or controls, in a timely and effective manner.

Ofgem found that, although SSE did publish inside information, it did not do so in a timely manner. On 22 March 2016, SSE signed a non-binding heads of terms with National Grid in relation to Fiddler’s Ferry power station, in which it was agreed that the power station would provide ancillary services to National Grid from any of three available units which previously had been scheduled to close. SSE also made the decision to retain Transmission Entry Capacity equivalent to the capacity of the three available units.

SSE did not disclose this prospective arrangement to the market until 30 March 2016, the date on which the contract was executed and signed.

Ofgem found that, on 22 March 2016, the fact that SSE had signed a non-binding heads of terms, and had made the decision to retain Transmission Entry Capacity, was in itself inside information for the purposes of REMIT and should have been disclosed to the market.

Ofgem found that SSE’s delay consequently resulted in four days of trading without the market knowing that the power station was not going to close, which Ofgem concluded was likely to have led to some market participants paying more for wholesale electricity.

In recognition of the fact that SSE admitted to the breach, and agreed to settle the matter during the early settlement window, Ofgem discounted the fine by 30 per cent to £2.06 million.

This decision turned on the question of of whether the information was sufficiently ‘precise’ to be inside information, on which question ACER introduced new guidance in the fifth edition of its REMIT Guidance (8 April 2020). This case further underlines the tendency of regulators to adopt a broad interpretation of the term ‘precise’. This case has far reaching implications for market participants, who may need to ensure they make disclosure about transactions even while negotiations are ongoing. Firms also will need to ensure that early disclosure of deals which are not then concluded is not taken to have misled the market.